Since the emergence of “Modern Portfolio Theory” and the “Capital Asset Pricing Model” in the late 1960s, institutional investors have taken a quantitatively driven approach to portfolio construction, looking to create portfolio diversification and obtain better risk-adjusted returns by balancing their asset-class exposures. This journey has seen several important advancements in thinking about how to optimally achieve desired results.
Funds that want to take the total portfolio approach first need to get the total portfolio view. To do that they not only need data – and lots of it – but a rock-solid understanding of exactly how they’re going to use it.
Financial Planner’s morning report – Wednesday
Central banks, more stimulus but a weak finish overseas
Despite an increasing chorus of experts suggesting the technology sector has moved beyond reasonable levels, the rally continues. The ASX 200 (ASX:XJO) added 2.6%, hitting a six week high, with a 5.7% rally in the IT sector among the largest contributors.
Just 13 of the indexes 200 constituents were in negative territory, with satellite imaging group Nearmap Ltd (ASX:NEA) leading the way, up 11.2%.
The market welcomes the Federal Government’s announcement that the JobKeeper and JobSeeker programs would be extended, albeit at lower levels, sending the Commonwealth Bank of Australia Ltd (ASX:CBA) up 2.6% on the hopes of reducing credit losses.
The EU finally agreed on its $750 billion Recovery Plan, with $390 billion to come in the form of grants and the remainder in loans sending the Eurostoxx 50 up 0.5%.
US markets gave back their early gains as a third round of stimulus became more unlikely, the Nasdaq down 0.9% and S&P 500 up 0.2%. This will mean a weaker start to today’s trading in Australia.
Central bank insights
RBA Governor Philip Lowe delivered a much-anticipated speech on Tuesday, highlighting the ‘bumpy’ path ahead for markets. The RBA has been able to limit its bond purchases in the secondary market, i.e. from other major banks, and noted in its speech that it did not intend to purchase any bonds directly from the Government.
The Governor congratulated those people who contributed to a record amount of mortgage refinancing in May, yet with most refinances reducing interest paid to banks, this isn’t a great sign for shareholders in the likes of Westpac Banking Corp (ASX:WBC) and CBA.
I remain wary of the medium term outlook for the banks and suggest a lower than usual allocation is warranted with profit and dividends under pressure.
Looking globally, Swiss investment bank UBS Group AG (SWX:UBSG) rallied 2.6% following in the footsteps of its US counterparts to grow its trading revenue by 43% and limit its profit fall to just 11%, or $1.23 billion.
Couldn’t have timed it better
As flagged previously, Santos Ltd (ASX:STO) announced an impairment or write-down of their oil and gas assets totalling $700 – $800 million due to the lower oil price.
Management appear to be pushing forward with the Narrabri project despite the backdrop of multi-year low gas prices in Australia; the share price finished 3.5% higher on the back of renewed optimism over COVID-19 vaccines.
It seems the middle of a pandemic is the best time to exit ‘non-core’ businesses as Downer EDI Ltd (ASX:DOW) reported a net loss of $150m, a $386 million write-down of the value of the various businesses it has purchased, an exit from the engineering and construction division and a $400 million capital raising.
Soft drink stalwart Coca-Cola Co (NYSE:KO) added 2.5% after reporting a recovery in volumes in the second quarter, falling 16% compared to the previous 25%.
On the other hand, Logitech International SA (SWX:LOGN) which makes keyboards and webcams among other products, posted a 23% increase in sales as the demand for the latter skyrocketed by 120% in the quarter.
The daily report is written by Drew Meredith, Financial Adviser and Director of Wattle Partners.
